Entrepreneur enters the beverage market with a “sick” new tea

By Hallie Busta

— Tim Megenbier intended for his new Sick Tea beverage to be a warm-and-serve version of the homemade remedy he grew up with: a combination of black tea, honey and lemon made to ease colds and the flu.

Locally made Sick Tea offers an alternative to soft drinks

It wasn’t until his teenage children pointed out that the ill-looking man on the product’s original label could represent more than a sinus infection that Megenbier found a target market in healthy adults. And once he tried it served cold, Megenbier knew he had a product that could stick.

The company, founded in 2008, joins a beverage market that has seen marked growth in the ready-to-drink tea category over the past six years, thanks to consumers’ growing thirst for beverages with health benefits. Category sales are expected to increase by 9 percent in 2011, due to growing awareness of the health benefits of tea’s natural antioxidants, said Garima Goel Lal, a senior consumer analyst at the Mintel Group, a market research firm.

“It has somewhat of a healthy halo,” Gary Hemphill, managing director of the New York City-based Beverage Marketing Corp., said referring to the ready-to-drink tea category.

Megenbier, too, saw the need for a product that would fit with consumers’ health needs. For his target market of 14- to 34-year-old sports enthusiasts, that meant a product different from the sugar-based ready-to-drink teas currently on the market, he said.

Sick Tea uses raw agave, a type of nectar from the agave plant that is about 75 percent sweeter than sugar, according Amanda Crawford McQuade, a medical herbalist in Los Angeles. Because agave has one-third the glycemic index of sugar, the body absorbs it more slowly, McQuade said.

Finding a niche

But Sick Tea isn’t looking to steal market share from competing teas, Megenbier said. Instead, he is targeting a niche market of extreme sports enthusiasts who see Sick Tea as an alternative to sugar-based sports and energy drinks.

“We are kind of a sub-category,” he said. “The sweetener in our product is the third or fourth thing on our label.”

That distinction could be beneficial, Hemphill said. To succeed in the competitive beverage market, Hemphill said, a company should offer “a point of difference with some uniqueness” that attracts customers.

Sick Tea got its first real push when Megenbier sold it at an event at the Circus Skate Park in St. Charles. A month later, Sick Tea had secured a sponsorship with a BMX track in Elgin. The tea outsold two national brands there from April to October, he said.

In 2009, Megenbier sold the product at an event celebrating the 100th anniversary of Harley-Davidson in Milwaukee. “In one day we sold over 120 cases of organic tea at a bike fest,” he said.

Right now, Sick Tea is sold in nearly 80 convenience and non-chain grocery stores in the Chicago area, which draw a younger consumer base.

Young consumers often are swayed by different flavors and eye-catching packages, Goel Hal said. Sick Tea plans to introduce two new flavors in the next 60 days: red tea with pomegranate and green tea with apple and lemon. While “Sick Tea” will remain the name for the original flavor, Megenbier said the other flavors might have different names.

Developing a distribution network

Although he put down more than $50,000 of his own money to start Sick Tea, Megenbier now is reaching out to investors. To keep manufacturing costs low, he will need to produce larger quantities of product. But extra product needs to be stored, transported and sold, which will increase costs, he said.

“We realize in order to grow we have to get behind it,” he said.

Megenbier plans to sell the product nationwide, which would mean adding jobs as well as increasing production capacity. Currently, Megenbier said, Sick Tea is working with distributors to continue to get product into convenience stores in the Chicago area. For a time, that meant going door to door at convenience stores asking them to sell his product partly to convince distributors that the product is viable in the marketplace.

But convincing distributors, who then have to convince retailers to sell the product, is one of the major challenges that startups face, Hemphill said. “If you leap that hurdle, then you have to convince the consumer,” he said.

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